Drawdown

There are two types of drawdown available from a pension fund. Firstly some common points: Drawdown is not normally a good option for funds worth less than £100,000. Secondly there is risk involved that needs to be understood.

Drawdown is essentially leaving your fund invested in the markets with the option of drawing an income up to a maximum amount set by the Government Actuaries Department (GAD). In favourable conditions the amount taken as an income is exceeded by growth in the fund – thus providing the potential for an increasing income in later years.

To make the counter point clear – drawing an income when the fund performance is less or even reduces the fund value can cause fund erosion and consequently reducing or eradicating income in future.

Back to the two types of drawdown, if you have a secure income (from personal, employer or state pensions – not investments) that is above £20,000 (currently) – you can draw down any amount of income from your fund. This income is taxable so if your income is above the basic rate band it will be taxed at higher rate(s). This is called flexible drawdown – independent fnancial advice should be sought because the whole subject is not as simple as I have laid it out here.

If guaranteed income is below the £20,000 then the type of drawdown is the capped variety. As indicated earlier the level is subject to GAD rates. Again advice is important because this is not a simple area of financial planning – there are many areas to consider including the application of many other tax regimes and HMRC regulations.

If this area of planning is of interest please contact me for a free initial meeting. Delivering Simple Financial Advice – That Reaaly Works.

Send me a message or request a meeting on eamonn.dorling@ntlworld.com  or mobile: 07767 795816